Investments are not just a wise business move and obtaining assets such as real estate, expensive watches, or diamond jewellery can also provide a valuable nest-egg for your future. But when parting with such a large amount of money and being unlikely to see it again for some time, how exactly do you ensure that assets like these are protected – and what exactly should you be protecting them from?
Many small business owners are unaware of the risk that both they and their families may be put in should the business run into financial issues along the way – but failure to ensure that the right means of protection is in place could mean that everything from your home to your car, and all those expensive luxury items in between, are there for the taking from creditors – and ultimately could see your entire world turned very quickly upside-down.
Why asset protection is essential
The goal of a comprehensive asset protection plan is to shield your business and personal assets from the claims of creditors. It’s important to consult an asset protection attorney and to take into consideration the value of your assets and the risk – the two biggest factors in knowing whether you could benefit from asset protection in the first place. Risks can stem from factors including your business or business partner, your children, or your home – as well as a variety of others.
A well-crafted asset protection plan will take this into account, assessing the types of assets you have and the risks that are applicable to them – for example, if you own and drive a luxury company car but have only a standard liability insurance policy, you could benefit from an extra layer of protection. Should you be involved in a collision and be the culpable party, then all of your assets could be exposed, both business and personal – so asset protection – that is, proactive protection of your wealth – is essential. The same applies to a number of other areas, from at home to at work. Should the worst happen, you could find yourself in a difficult situation if you don’t take the right steps to put safeguarding in place.
A concept introduced in the 1970s, asset protection doesn’t just shield your possessions from creditors, but from other forms of attack, too. Shielding the various elements of your wealth from the likes of criminal activity, or catastrophes such as fire or flooding is also a means of protecting couples in the event of a divorce, to prevent one spouse from making an unfair claim to money that isn’t theirs.
A thorough risk assessment is essential to ensure that you put the right protection in place for your assets, allowing you to more easily determine the correct level required. With business owners at increased risk thanks to factors such as customers, creditors, suppliers, and employees, which elevate the chance of losses, asset management strategies can vary – so let’s take a look at some of the options.
Separation of assets
A strategy suitable for married couples as well as those in long term live-in relationships, separation of assets is a protective measure that will prove beneficial should the partnership end in divorce. By law, each spouse is entitled to half of the amount of money in any joint accounts, as well as half of any jointly owned business, so keeping finances and businesses separate if they belong to one member of the partnership is one way to avoid this.
This can be particularly useful where one person is coming into the partnership with considerably more than the other and will protect their wealth should the worst happen. Business owners should also take steps to separate their personal assets from it. If your company is sued, then this can only be brought about the business itself, keeping your personal possessions free from danger.
Creation of an independent business entity
An important consideration for landlords who rent properties out to tenants, the creation of an independent business entity will offer protection for other assets should a disgruntled tenant decide to sue. Should this occur, they will only be able to bring a case against the business entity itself – and will be unable to make a claim based on any of your other assets.
Formalisation of partnerships
All business partnerships should be formalised to ensure that each party is protected should the other find themselves in financial trouble. If one person is involved in an accident or owes money, this could put all of your joint possessions at risk, as well as your own personal ones if the right measures are not in place.
Loss minimisation
Businesses of all sizes can benefit from loss minimisation, protecting their personal assets should the company come under financial strain and its creditors decide to sue. In order to do this effectively, it’s important to record an accurate list of assets owned by the business and to always establish credit for business endeavours in the company’s name only. You’ll also need to maintain up-to-date corporate records to uphold the integrity of separation.
Key takeaways
An asset management plan will employ legal strategies and implement them prior to any claim or lawsuit arising, preventing the seizure of your personal assets – but it will also protect you from numerous other risks besides. With elements such as theft, natural calamities and family conflicts to contend with, too, there can be a lot to think about – but taking the time out to consider your options is vital in protecting your assets and your wealth – not just now, but for your future, too. Knowing where to start can feel difficult, so be sure to consult with a professional who will be able to provide you with all the guidance you need.
If you’re yet to put an asset management plan in place, then don’t delay – you never know what could be around the corner, and procrastination could land you in a sticky spot that could so easily have been avoided.
